Bonei Hatichon: Kiryat Ono Surpluses Versus the Bondholders
Ae and B look like Bonei Hatichon's clearest value engines, but their surplus layer is narrower than headline gross profit suggests. After the lending bank, the pledged accounts, and the debt service already tied to those projects, what remains above the bond layer is smaller and later than the first read implies.
Not Every Kiryat Ono Surplus Belongs To Equity
The main article argued that Ae and B are the clearest value engines inside Bonei Hatichon. This follow-up does not revisit the whole company. It isolates one question: how much of the surpluses in those two Kiryat Ono projects can actually become accessible value for shareholders once the lending bank, the trustees, and the bonds take their place in the waterfall.
That matters because the word surplus looks simpler than it really is. In Ae, the company shows expected gross profit of ILS 221.2 million and expected withdrawable surplus of ILS 175.8 million. In B, expected gross profit is ILS 154.3 million and expected withdrawable surplus is ILS 117.7 million. A first-pass reading can easily turn that into a story of almost ILS 294 million "on the way." That is too flat a reading.
The mistake is to collapse four different layers into one: gross profit, economic profit, surplus that the bank is willing to release, and surplus that remains above the bond layer. Those are not the same number, and in both projects the gap is wide.
| Project | Expected withdrawable surplus | Bond layer already tied to the project | Additional known right or adjustment | Visible room after the known layers |
|---|---|---|---|---|
| Kiryat Ono Ae | ILS 175.8 million | ILS 120.0 million of Series 21 principal and interest in 2027-2028 | ILS 18.7 million the company is entitled to recover for prior payments made from its own sources | About ILS 37.1 million |
| Kiryat Ono B | ILS 117.7 million | ILS 90.2 million of Series 23 principal and interest in 2028-2029 | Additional adjustments of ILS 13.0 million that reduce adjusted surplus to ILS 104.7 million | About ILS 14.6 million on the adjusted basis the company presents |
The last column is a simple bridge based on the company tables. In Ae, ILS 175.8 million less ILS 120.0 million of debt service and less ILS 18.7 million of prior-payment recovery. In B, ILS 117.7 million less ILS 13.0 million of additional adjustments and less ILS 90.2 million of debt service. Even after that exercise, this is still not clean cash in hand. It is only what remains above the layers that are already spoken for.
The two bridges make one point very clearly: withdrawable surplus is not a shortcut from project gross profit to free equity cash. It passes through equity that has already been invested, through financing and selling costs that do not sit inside cost of sales, and through a debt layer that already knows which project is supposed to feed it.
Bank First, Trustee Second
In B, the Series 23 trust deed writes that hierarchy explicitly. "Surplus" is not every future shekel of project value. It is only the money the company is actually allowed to draw from the project account after full repayment of the lending bank, taxes, suppliers, subcontractors, and other project costs. As long as cash still sits inside the project account, it is not yet surplus for the trustee.
That leads to the less comfortable point for equity, and really for bondholders as well. As long as funds have not been released from the project account, Series 23 holders do not have a secured position over those funds. The bank stands ahead of them, and the bank is not required to transfer surpluses before its own project-related claims are fully satisfied. The deed also says explicitly that if the bank enforces its own collateral, the bondholders may be left without an effective economic security. If that is true for the bonds, it is obviously true for the equity layer.
For shareholders the implication is simple. A surplus number in a table is not free cash sitting at Bonei Hatichon. It is first a surplus the bank must agree to release, then a surplus the company has committed to route into a pledged account, and only later a surplus that may rise above the bond layer.
There is also an important nuance here. In Series 23, once the pledged account already holds cash equal to or above the series' maximum liability amount, additional surplus can flow to the company until the next payment date. So the deed does not trap every shekel forever. But it does say that the money only becomes freer once the secured layer is already sufficiently covered.
Ae: The Big Number, But Not A Free Cash Box
Ae is the more impressive project on a headline basis. At year-end 2025 the company shows 43% cost completion, 75 units sold by year-end and 79 by report date, expected gross profit of ILS 221.2 million, and expected withdrawable surplus of ILS 175.8 million. That is real value creation, but it is not the same thing as a free cash engine for equity.
The first reason is that this surplus already carries Series 21 on its back. The bond-flow table shows Ae supplying ILS 73.9 million in 2027 and ILS 46.1 million in 2028, together ILS 120.0 million. That is not an optional use. It is a use already assigned to the project.
The second reason is that the company itself discloses an entitlement to recover ILS 18.7 million, in relation to Series 21, from the surplus accounts for payments it already made from its own sources. So even what remains above scheduled debt service is not all fresh excess. Part of it is meant to repay money that already left the company.
The third reason is timing. The company says explicitly that the financing agreements do not set hard surplus-release dates. There is only an oral understanding that if combined sales and execution move above 70%, the bank considers release positively, but the decision still depends on credit usage, deposits, sales pace, and expected project completion. In other words, even the ILS 175.8 million figure is not a cash receipt timetable for equity. It is an economic estimate that still sits behind the bank's discretion.
This is also where the sales-terms warning flag enters. The company says that if sales continue under 20/80-style structures and similar terms, additional funding sources will be needed. If the answer comes through larger project credit lines, economic profit and end-of-project surplus fall by the extra interest burden. Ae is therefore a large value engine, but it is still a value engine that has to be financed all the way through.
That is why Ae looks better as future project value than as free cash above the bonds. On the disclosed bridge, only about ILS 37.1 million remains above scheduled debt service and known reimbursement claims, and that is before any further slippage in funding, sales quality, or timing.
B: In Series 23 The Priority Is Visible In Black And White
In B the picture is even sharper, because both the numbers and the deed are tighter. At year-end 2025 the project was 41% complete on a cost basis, with 40 units sold by year-end and 42 by report date. Expected gross profit stands at ILS 154.3 million, but expected economic profit already falls to ILS 67.7 million. Once you add the ILS 50.0 million of equity invested, expected withdrawable surplus reaches ILS 117.7 million.
That number does not belong to equity either. The bond-flow table shows B supplying ILS 63.9 million in 2028 and ILS 26.3 million in 2029, together ILS 90.2 million. That already absorbs most of the surplus layer.
But B has two extra restrictions that make the story tighter still.
First, the company itself presents additional adjustments of ILS 13.0 million, reducing the adjusted surplus to ILS 104.7 million. That already takes the project close to only ILS 14.6 million of room above the bond layer.
Second, the Series 23 deed says that any payment the company makes to the bondholders from its own sources will be repaid to it out of the pledged account, even if that reimbursement empties the account. So if during 2026 and 2027 the company pays coupons out of pocket before the project starts releasing meaningful surplus, later surplus does not begin as clean free cash. It can first go to repay what the company already advanced.
That is exactly why the surplus ratio matters more than it first seems. At year-end 2025 the annual report shows Series 23 at 138%. That is above the 110% minimum ratio, so this is not a case of immediate covenant pressure. But the deed requires a 150% ratio, based on a fresh zero report, in order to release "excess equity" from the pledged account. So B sits above the floor, but still below the level that would support a comfortable read of genuinely freer cash.
That distinction matters a lot. Being above 110% means the series is not in immediate stress. It does not mean equity has already returned to a comfortable priority position. In practice, shareholders still sit behind the bank, behind the pledged account, and behind a bond series with a very explicit claim on released project surplus.
What Actually Remains Above The Bond Layer
If you combine the two projects, the headline looks large: ILS 293.5 million of expected withdrawable surplus. But once you respect the actual priority stack, ILS 120.0 million is already tied to Series 21 debt service, ILS 90.2 million to Series 23 debt service, ILS 18.7 million is a known reimbursement right to the company on Series 21, and B carries another ILS 13.0 million of additional adjustments. After all that, only about ILS 51.6 million remains above the bond layer across the two projects.
Even that number still does not mean cash in hand today. It depends on estimates, on execution and sales pace, on actual release decisions by the bank, and on the absence of additional financing pressure that would erode it. So the right way to read Ae and B is not through gross profit, and not even through expected surplus alone. The right way is to ask, at every stage, who is ahead of whom.
In Kiryat Ono, the current answer is clear:
- The bank comes first.
- The pledged account comes next.
- Series 21 and Series 23 already know which part of the released surplus is meant to serve them.
- Only after that does genuinely residual equity value begin.
That is why this continuation reaches a sharper conclusion than the main article. Ae and B are indeed Bonei Hatichon's value engines. But at the shareholder layer, their surpluses are still not a wide, liquid buffer. They are a layer of value in transit, with several senior claims ahead of them and a release timetable that is later than the headline suggests.
Bottom Line
Anyone looking at Kiryat Ono and seeing almost ILS 294 million of expected surplus is missing the structure. That is not ILS 294 million sitting above equity. It is ILS 294 million that the bank must first release, the trustees must first see in pledged accounts, and the bond series already expect to absorb in large part.
Translated back to shareholders, Ae offers more room than B, but even Ae is not an open cash box. B already looks like a project where the bond layer absorbs most of the surplus, especially on the company's own adjusted basis. So the right way to read how much of Kiryat Ono is truly accessible to equity is to look less at headline gross profit and more at the order of priority: bank, pledged account, debt service, and only then residual value for shareholders.
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